In this episode of "20 minutes VC," host Harry Stebbings interviews Andy Weissman, a partner at Union Square Ventures (USV), a firm with notable investments in Twitter, Twilio, and Tumblr. Andy shares his journey from co-founding Betaworks to joining USV and emphasizes the importance of process over luck in venture capital. He discusses the collaborative decision-making at USV, the nuances of reserve allocation, and the potential impact of ICOs on traditional VC models. The conversation also touches on the human elements of VC, such as mentorship and board dynamics, and concludes with Andy's recent investment in Flip, a sublet marketplace, reflecting USV's commitment to increasing economic freedom.
"Now Andy is a partner at Union Square Ventures, one of the world's leading VC firms, with investments in Twitter, Twilio, Zynga, Soundcloud, Tumblr lending Club and many more incredible companies."
This quote introduces Andy Weissman's role at Union Square Ventures and highlights the firm's successful investment portfolio, establishing the context for his expertise in venture capital.
"And then I eventually ended up here. And so the little joke story I like to tell is I couldn't get this firm to invest in my company, but I could get them to have me be a partner here."
The quote illustrates Andy's non-linear path to venture capital and his eventual partnership at USV, despite his company not receiving investment from the firm initially.
"And if you have a process and you perfect that process and you stick with that process, sometimes it works and that's luck, right?"
The quote emphasizes the importance of a robust process in venture capital, acknowledging that even with such a process, successful outcomes can often be attributed to luck.
"But I think what's important is at least acknowledging that process and trying to understand that process and trying to perfect that process and have conviction around that process, if that makes sense."
This quote highlights the necessity of recognizing, understanding, and refining the process of making investment decisions in venture capital.
"I'm really comfortable not knowing what I don't know. And in this world of uncertainty, or in this business of uncertainty. So therefore, I've gotten more comfortable with process being something that maybe over time I can prove I'm good at versus predicting the future, or even picking individual companies, though that's part of the job."
The quote conveys Andy's acceptance of uncertainty in venture capital and his belief in the value of process over prediction.
"This is such a good question. I think that different firms have different styles, right?"
This quote introduces the topic of how venture capital firms may differ in their approach to decision-making, with some emphasizing individual judgment and others, like USV, favoring a collective process.## Collaborative Decision-Making
"And so we make decisions collaboratively as a group. And therefore we all share in the upside of those decisions, or the heartache or downside that comes from those decisions."
This quote emphasizes the collective nature of decision-making at the firm and how all members share the outcomes, whether positive or negative.
"I think with the rise of specialization within funds, we're seeing more collaborative, consensus, process driven funds."
The speaker notes a shift towards collaborative processes in specialized investment funds, as opposed to the individualistic approach in generalist funds.
"Not every decision doesn't have to be correct, but the process will lead to it being correct, hopefully a couple of times over the course of a fund."
This quote captures the idea that the overall investment process, rather than individual decisions, is what drives success in the venture capital business.
"I do think part of the craft of VC is math, right? And that math is we have to take a fund and return it, let's say return three to four times the capital to our investors."
The quote discusses the importance of mathematical considerations in venture capital, highlighting the need to balance valuation concerns with the objective of returning multiple times the capital to investors.
"We do not vote. We have a conversation. And that conversation leads to a point where everyone is comfortable with the parameters of an investment."
This quote describes the firm's method of reaching investment decisions through consensus-building conversations rather than formal voting.
"So we're long term very engaged partners. So that means we reserve full amounts for our companies and we generally keep investing in them."
The speaker explains the firm's approach to reserve allocation, emphasizing their commitment to long-term partnerships and continued investment in their portfolio companies.
"I'm really intrigued to hear how you think about recycling cash in the fund at USV, and how you look to maintain lp happiness in doing so."
This quote shows the speaker's curiosity about how funds manage early liquidity events and the strategies they use to keep their limited partners content with the fund's performance.## Recycling in Venture Capital
"Everyone wins with recycling. It's so good for your lps, it's additional investment dollars that they're not paying management fees on."
This quote emphasizes the benefits of recycling for LPs, as it allows them to invest more money without incurring additional management fees.
"We do reserves analysis continually a couple times a year on each one of our portfolios, we run Monte Carlo simulations and we look at where the average of all those potential outcomes are."
The quote explains the process of reserves analysis and the use of Monte Carlo simulations to inform decisions about when to recycle capital within a fund.
"I don't think we've ever set it as a number. I think it probably comes to 120, but I don't know if we've ever done the math on that."
Andy Weissman suggests that while there isn't a strict numerical target for recycling, the practice tends to reach around 120% by default.
"I believe on one point that early stage software technology based venture capital is a near perfect craft for what it does."
Andy Weissman states the effectiveness of the current VC model for early-stage software technology ventures, suggesting it's a highly specialized and successful approach.
"But maybe there can be better or different models for different categories, categories of businesses, asset classes, ways to structure things."
This quote reflects Andy Weissman's openness to the idea that the VC model may evolve to accommodate different types of businesses and asset classes.
"You have funding mechanisms that are happening incredibly fast at incredible magnitudes, and they're happening incredibly fast, incredible magnitudes, because they're programmatic, they're code based, and they're worldwide."
Andy Weissman describes the unprecedented speed and scale of funding through ICOs, highlighting their unique, code-based, global nature.
"What do you think the most value add thing currently, today a venture investor does? Could we boil it down to one thing, or is that too simplistic?"
Harry Stebbings questions the possibility of identifying a single most valuable contribution of a venture investor, acknowledging the complexity of the role.
"We have made investments in other sectors where we believe the answer to that question may be yes."
Andy Weissman indicates that USV is investing in sectors where a quantitative approach to investing may be viable, reflecting a willingness to innovate beyond traditional VC methods.
"We're investors in an entity called Numerai, which is a hedge fund that uses a community of data scientists and has some intricacies around that to make its trades."
This quote by Andy Weissman illustrates USV's investment in Numerai, highlighting the alignment with their thesis on network effects and community-based businesses.## VC Superpower
"I believe that. I don't know what I don't know and I'm very, very comfortable with that."
This quote highlights Andy's acceptance of his limitations and his comfort with not having all the answers, which he considers a strength in venture capital.
"I believe actually VCs should be invisible."
Here, Andy expresses his old-fashioned belief that venture capitalists should not seek the limelight but rather support their entrepreneurs from behind the scenes.
"Having USV in your enterprise startup allows big corporates to feel comfortable that there's a sustainable cash Runway in this company and they can trust them as a vendor and a service provider."
Harry Stebbings presents an argument for the importance of VC branding, suggesting that it can provide startups with credibility and trustworthiness in the eyes of potential clients and partners.
"Our investment memos are our blog posts."
Andy explains how USV uses transparency in their investment process to provide social validity to their startups while still maintaining a sense of invisibility as a VC firm.
"I think that managing conflicts amongst board members or amongst founders is a thing that just takes more experience."
This quote highlights Andy's view that experience is key to becoming more adept at handling conflicts within a board or between founders.
"My biggest mentors don't know they're my mentors, so I can't out them."
Andy's statement underscores his belief in the power of indirect mentorship and the impact that others can have on one's growth without formal recognition.
"One is that the only truth is music. Everything else is uncertainty."
Andy conveys his belief in the universal and certain nature of music amidst a world of uncertainties.
"Whatever you do, take care of your shoes."
This quote reflects Andy's practical advice on the importance of quality footwear, which he considers more important than many other things.
"My favorite book is on the road by Jack Kerouac. It is the book that I have read the most times because it's the book that represents the most about life..."
Andy explains why "On the Road" resonates with him, citing its thematic richness and relevance to various aspects of life and personal growth.
"I have three favorites, which are three things I'm interested. One is fish net... The second one is radio free mobile... But Albert's blog to me is one of my favorites..."
Andy shares his top picks for blogs and newsletters, highlighting his diverse interests and the value he finds in each of these sources.
"The most recent publicly announced investment was a company called Flip... The reason we said yes is that the vision of this company is to increase individuals economic freedom..."
This quote summarizes USV's rationale for investing in Flip, emphasizing the alignment with the firm's values and the potential impact on individual autonomy.
"But don't trust me on this. Their clients include the likes of Instacart, eshares and wish just to name a few."
Harry Stebbings provides an endorsement for First Republic, a company offering support systems to startups, by listing some of their notable clients to establish credibility.
"Segment really is the last integration you will ever do."
Harry promotes Segment, a company that helps businesses manage customer data, by emphasizing its comprehensive integration capabilities and its use by leading companies.